Under what conditions does the Bonchon franchise agreement automatically terminate without notice due to insolvency?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
You will be in default of this Agreement, and all rights granted in this Agreement will immediately and automatically terminate and revert to us without notice to you, if: you become insolvent; you or any of the Bonchon Businesses or any Guarantor is adjudicated as bankrupt or insolvent; all or a substantial part of the assets thereof are assigned to or for the benefit of any creditor or creditors; a petition in bankruptcy is filed by or against you or any of the Bonchon Businesses or Guarantor thereof and is not immediately contested and/or dismissed within sixty days from filing; you admit in writing your inability to pay your debts when due; you, your franchised Business(es) and any affiliate or Guarantor thereof cause, permit or acquiesce in an order for relief under the U.S. Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization, receivership or other similar law now or hereafter in effect, or consent to the entry for
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, the franchise agreement can be terminated automatically and immediately without notice if certain insolvency-related events occur. This means Bonchon does not have to provide any warning or opportunity to correct the issue.
Specifically, the agreement terminates automatically if the franchisee becomes insolvent, is adjudicated bankrupt or insolvent, or assigns a substantial part of their assets for the benefit of creditors. Additionally, if a bankruptcy petition is filed by or against the franchisee (or any guarantor) and is not contested and/or dismissed within 60 days, the agreement is automatically terminated. The same occurs if the franchisee admits in writing their inability to pay debts when due, or if they cause, permit, or acquiesce in an order for relief under bankruptcy laws.
This clause is a significant risk for potential Bonchon franchisees. If any of these insolvency events occur, the franchisee immediately loses all rights under the agreement without any chance to remedy the situation. Franchisees should be aware of these conditions and ensure they have sufficient financial stability and risk management strategies in place to avoid such circumstances. Automatic termination clauses are not uncommon in franchising, as franchisors seek to protect their brand and system from the negative impacts of a franchisee's financial distress.